Academic journal article Vanderbilt Law Review

Putting an End to False Claims Act Hush Money: An Agency-Approval Approach to Qui Tam Prefiling Releases

Academic journal article Vanderbilt Law Review

Putting an End to False Claims Act Hush Money: An Agency-Approval Approach to Qui Tam Prefiling Releases

Article excerpt


The False Claims Act ("FCA") deputizes private citizens to combat fraud against the United States government by offering them a portion of the bounty.1 This concept has existed in some form for hundreds of years-the strategy of "setting a rogue to catch a rogue."2 Medieval England used it in place of police forces.3 The American Colonies caught pirates this way.4 Even Abraham Lincoln protected the Union Army from faulty equipment by encouraging corrupt military suppliers to report one another.5 In modern American history, the FCA has proven extraordinarily effective at using this ancient tactic. The Act fines wrongdoers triple the amount of damages suffered by the government, plus $5,000 to $10,000 for every false statement the violator made.6 Between 1987 and 2013, the federal government recovered more than $27 billion as a result of modern-day privateers coming forward under the FCA to claim their bounties on fraud.7

The FCA "enhance[s] the Government's ability to recover losses sustained as a result of fraud against the Government"8 and covers a wide range of fraudulent activities including "present[ing] . . . a false or fraudulent claim for payment," "us[ing] a false record or statement material to a false or fraudulent claim," and "avoid[ing] or decreas[ing] an obligation to pay or transmit money or property to the Government."9 The FCA further includes a qui tam provision that allows private citizens to bring claims on behalf of the government.10 Individuals who bring such claims are called "relators."11 This provision entices relators to file FCA claims by offering up to thirty percent of the government's recovery if the suit is successful.12

Under the FCA, once a relator files suit he cannot release the claim without government approval.13 However, the Act does not similarly restrict prefiling releases of qui tam claims-i.e., releases of legal claims against the individual defrauding the government that the relator signs before filing a lawsuit.14 In recent years, numerous companies have taken advantage of the omission of prefiling restrictions by requiring terminated employees to sign releases that waive qui tam rights in exchange for generous severance packages. Because companies can offer potential relators the complete certainty of severance packages but a relator must weather the costs and risks of litigation to win only thirty percent of FCA damages, potential relators rationally choose the certainty of a severance package over the mere potential of partial damages.15 Therefore, using severance packages to cover up fraud may cost companies significantly less than allowing terminated employees to bring qui tam claims. Additionally, companies pay this "presettlement" to terminated employees, not the defrauded government, shifting funds away from the rightful owner of the claims to terminated employees.

In deciding whether to enforce these qui tam provisions, courts primarily take the government-knowledge approach. If the government has already investigated the fraud, the contract is enforced and the former employee cannot bring the claim. Alternatively, if the government had not investigated the claim at the time of the employee's release, courts may refuse to enforce these provisions.16 Unfortunately, the simple elegance of this solution is misleading: it misaligns insider incentives, presents information-obtainment difficulties, and denies the government the ability to supplement its own prosecutorial efforts-one of the FCA's major stated goals.17

Part II of this Note recounts the history of the False Claims Act and the Act's evolution into its current version.18 It also highlights the failure of the 1946 jurisdictional bar that prevented relators from bringing suits on information that the government already knew-a precursor to the flaws seen today in the courts' similar approach to reviewing prefiling releases. Part III explains the current government-knowledge approach and the enforceability of prefiling releases. …

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